Dive Brief:

• The Consumer Financial Protection Bureau (CFPB) fined Bank of America $10 million for processing illegal, out-of-state garnishment orders against its customers’ bank accounts, the bureau announced Wednesday.
• The Charlotte, North Carolina-based lender “unlawfully froze customer accounts, charged garnishment fees, garnished funds, and sent payments to creditors based on out-of-state garnishment court orders that should have been processed under the laws and protections of the states where the consumers lived,” the regulator said. 
• The CFPB also ordered the bank to refund or cancel imposed fees from unlawful garnishments and revamp what it called a “broken garnishment process.”

Dive Insight:

The CFPB said the nation's second-largest bank violated the law by including “unfair and unenforceable language” into contracts that deceived customers about their rights to challenge garnishments, a legal procedure in which a person's earnings are withheld by an employer and sent to another party, such as for payment of a debt.

“Bank of America imposed unlawful garnishment fees and injured its customers by inserting unenforceable clauses into contracts in an attempt to strip legal rights from families,” CFPB Director Rohit Chopra said in a statement. “The CFPB is ordering Bank of America to fix its systems, clean up its contracts, and make its victims whole.”

The CFPB said Bank of America indicated to its customers that it applied the exemption law of the garnishment issuing state, misrepresenting to customers "that their rights to have certain funds exempted from garnishment orders were governed by the laws of the issuing states when, actually, in most states, customers’ own state laws apply."

Bank of America also required customers to “direct” it not to contest the orders and to waive the bank’s liability for its actions regarding the out-of-state garnishment orders, the bureau asserted.

“[A]ccount holders have the right to challenge garnishments despite any language in their account agreements to the contrary,” the CFPB said.

Bank of America failed to disclose to customers when accounts were located out of state and protected from the issuing courts’ garnishment orders, the CFPB said.

The CFPB ordered the bank to refund at least $592,000 in garnishment-related fees it said the bank illegally charged its customers.

In a statement to Banking Dive, Bank of America said it has enhanced its processes to ensure compliance with all applicable state laws as it executes court orders, adding it will refund associated fees to customers involved in approximately 3,700 cases.